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The Starker Exchange Trust, or the 1031 exchange as it is also called, can be used by an investor who wishes to sell some of their investment property but they do not want to pay taxes on it. The 1031 exchange real estate deal will allow the seller to defer the taxes if they purchase another property that is the same price as the one they want to sell. Of course, there are strict rules regarding this exchange.

If you own an investment property or a business, then you may be able to benefit from this trade and possibly save quite a bit of money, simply by exchanging assets rather than selling them. A “like kind” exchange under the IRS 1031 Exchange applies to personal property and real estate and may save you both state and federal taxes, anywhere from approximately 15 to 36% per dollar gained, depending upon your individual state’s tax rate.

To facilitate your 1031 exchange and to satisfy the requirements of the Internal Revenue Service you will need to use a Qualified Intermediary (QI), as this also helps to ensure that all of the rules for the exchange have been met and that it will be approved. Their role is on behalf of the taxpayer by buying and selling the assets, as well as holding the funds for them.

Once your property has been sold, you will have 45 days to declare the potential replacement business or property that is the 1031 like kind exchange of the property that has been sold. Fortunately, all real estate is considered “like kind” so you can trade an office building for land, etc. Once approved, you must acquire your like kind property within 180 days from the date you sold your old property. In order to defer 100% of the taxes from the sale you have to meet two requirements with the new property; first you have to buy a property that is of equal or greater value than your old property. Then you must use 100% of the net proceeds from the old property to obtain the new property.

The last step towards ensuring that the 1031 exchange is approved is to be sure that the new property is titled in the same name as the old property. In other words, if the old property was titled to a corporation or individual, then the new property must be titled in the same corporation or individual’s name.

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